BY MARK SCHUMANN

Representatives from the City of Vero Beach, Florida Power & Light, the Orlando Utilities Commission and the Florida Municipal Power Agency met in Orlando yesterday to discuss a power purchase agreement between the OUC and FPL that is key to the sale of Vero Electric.

In order to sell its electric system, Vero Beach must transfer its power entitlements and debt service obligations on three FMPA power projects – St. Lucie Two, Stanton I and Stanton II.  The OUC has agreed to assume these obligations in exchange for $34 million in cash and gas transmission rights estimated to be worth $8 million to $10 million.

Integral to the deal, though, is a separate contract between the OUC and FPL.  Essentially, FPL has agreed to buy 38 megawatts of power from the OUC for three years.  This agreement insures the OUC will have a buyer for the power entitlements it is assuming from Vero Beach.

The transaction would be simple enough, except for two issues. The Stanton I and Stanton II plants were financed with tax-exempt revenue bonds, and FPL has agreed to buy the 38 megawatts of power from the OUC at above-market rates.  Internal Revenue Service rules limit the sale of power from municipal utilities to investor-owned power companies to no more than three years and at market rates.

FMPA representatives have previously insisted that as the entitlement transfers and power purchase agreements are currently structured, they will not approve the deal without clearance from the IRS.

In order to avoid running afoul of IRS restrictions, the power purchase agreements will have to be restructured, or “tweaked,” as City Manager Jim O’Connor put it.  According to O’Connor, the basic outline of the entitlement transfers agreements between the OUC and Vero Beach remains in place.

According to City Attorney Wayne Coment, the latest proposal to avoid jeopardizing the tax exempt status of FMPA bonds is to craft a deal that would have FPL buy power from the OUC without specifically linking the transaction to the FMPA power the OUC is assuming on behalf of Vero Beach.

Coment chuckled when asked how OUC electrons would be differentiated from FMPA electrons, since the OUC operates and owns the majority interest in the Stanton I and Stanton II plants.

Though Councilwoman Pilar Turner was appointed by the City Council to attend the meeting as an observer, she did not make the trip to Orlando, nor did she listen in to the discussions by telephone.

A follow-up meeting is scheduled for June 12 in Orlando, the day after the deadline for public input on FPL’s filing seeking Federal Energy Regulatory Commission approval of the deal.